Corporate Taxes not Paid by more than a Third of large Companies

Photo: Companies in the struggling resources and manufacturing sectors were less likely to pay tax. (freeimages.com: surely)

More than a third of large public and private companies paid no tax in 2014-15, according to data released by the Australian Taxation Office (ATO).

Key points:

64pc of 1,904 large companies paid at least some corporate tax in 2014-15

Almost 60 per cent of large resources and energy firms paid no tax

ATO said 15pc of firms had an accounting loss, 7pc a tax loss

The ATO’s latest corporate tax transparency report showed 36 per cent of large firms had zero tax payable in 2014-15.

However, this is a slight improvement on the prior 2013-14 financial year, where it was nearly 38 per cent.

The entities covered by the report are public and foreign firms with an income of $100 million or more and companies privately owned by Australian residents with an income of $200 million-plus.

There were 1,904 companies that fell into these categories.

Resources and energy had the greatest proportion of firms that did not pay any tax, at just under 60 per cent, while almost 40 per cent of manufacturers also paid nothing.

Financial firms, retailers and other companies in the services sector were much more likely to have paid up, with less than 30 per cent having a zero tax bill in 2014-15.

Tax commissioner Chris Jordan said it was likely that trend continued in the most recent 2015-16 financial year.

“I would expect to see a further drop in profitability of the energy and natural resources sector and a reduction in tax paid by that sector, partially offset by strengthening in other industries such as banking and finance,” he told reporters during a briefing.

The data needs to be read in the light of a commodity downturn that sent many resources and energy firms into a loss, and the ongoing troubles affecting Australian manufacturing.

Mr Jordan said the total income figure related to revenue, but did not mean the company actually made a profit from that revenue.

“No tax paid does not necessarily mean tax avoidance,” he said.

“Even companies with very high total income sometimes make losses.”

Mr Jordan cited Qantas as a prime example of a company with a very high total income in 2014-15 that paid no tax because it made a loss due to the costs incurred running the business.

Why firms paid no tax

Of the 1,904 companies included:

64pc of firms paid tax

15pc incurred an accounting loss

7pc incurred a tax loss

7pc used prior year losses

7pc various tax offsets

“These figures alone do not tell the complete story of a company’s tax affairs or their level of engagement with the ATO,” he said.

“There are no surprises here to the ATO.”

It was a sentiment echoed by the Business Council of Australia’s (BCA) president Jennifer Westacott, who said the data should be interpreted with care.

“Companies do not pay company income tax on revenue – they pay it on profits after paying all expenses including wages, capital replacement, supplier costs, fleet costs and other operating expenses,” she noted in a statement.

Ms Westacott said the BCA has been encouraging its members to improve their financial transparency.

“The Australian public should feel assured that companies are meeting their tax obligations, which is why we’re encouraging our members to sign up to the voluntary Tax Transparency Code,” she added.

“Business Council members already account for 45 of the 65 companies that have signed up to the Tax Transparency Code. Those member companies accounted for $23 billion, or 34 per cent, of total company tax paid in 2014-15.”

However, Mr Jordan’s offsider Jeremy Hirschhorn said the ATO is starting to see some benefit from recent measures to limit tax avoidance, although not reflected yet in the 2014-15 numbers.

“In high intellectual property linked industries, such as e-commerce, and in that area we have the multinational anti-avoidance law, we are already seeing companies significantly restructure and change the amount of profits that they are landing in Australia,” he said.